VA kills free online file system

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The free ride for Virginia residents who took advantage of the iFile system has hit a wall.

Thanks to a bill passed by the General Assembly and signed into law Sunday by Gov. Bob McDonnell, the commonwealth’s free tax filing service has disappeared. The task will now be handled by private businesses that can charge fees for the service, the Richmond Times-Dispatch reported.

The law replaces the 10-year-old iFile with the Virginia Free File program run by a group representing for-profit tax-preparation vendors. “Free file” is something of a misnomer. It’s free for people with adjusted gross incomes below $57,000. Everyone else will be subject to a fee.

The new program is patterned after a federal program involving a partnership between the Internal Revenue Service and a consortium of tax-software vendors.

Through a link on the IRS Web site, the industry group provides free online tax-filing services to 70 percent of federal taxpayers. In exchange, the group has been given the right to charge a fee for electronically filing returns for higher-income taxpayers. For tax year 2009, the threshold for free filing was below $57,000.

Proponents of the legislation said many would still get their taxes filed for free, and the fee for Virginians making $57,000 or more would be minimal, but critics, including as Sen. Creigh Deeds, said it could run up to $37, depending on the vendor selected.

And it could cost the commonwealth as well. A Department of Taxation fiscal impact statement on the legislation showed iFile cost the state $49,200 to maintain. Switching programs could end up costing the state almost double that if the 90,000 filers who no longer will be able to file electronically for free go back to paper returns.

The Taxation Department estimates it would cost $1 each to process the paper returns.

"At a time when we were looking at fees and coming up with all different scenarios to fund the core services of government, this is not a core service of government,'' she told the Times-Dispatch. "Is this the best use of our resources?"

But critics view the move as the result of successful efforts by private tax-filing services' lobbyists to steer thousands of potential filers to private businesses, who now will be able to charge a fee for the same service Virginians were getting for free.

One of the vendors, Intuit, has donated $113,500 to state lawmakers since 2001, according to Virginia Public Access Project

campaign contribution records, the Times-Dispatch reported. The information-technology company owns TurboTax, one of the top tax-software programs on the market.

In 2009, Intuit donated $10,000 to the Dominion Leadership Trust, a political action committee run by House Speaker William J.

Howell, R-Stafford. The company operates a customer-service center about 4 miles from Howell's district office.

Last year, Intuit also gave $7,500 to the McDonnell for Governor campaign and $5,000 to the Strong Majority PAC run by House

Minority Leader Ward L. Armstrong, D-Henry, according to the Times-Dispatch.